Question 1

The bond market

Accepted Answer

A)  can be quite "thin." 
B)  primarily consists of a network of bond dealers in the over-the-counter market. 
C)  consists of many investors on any given day. 
D)  can be quite "thin" and primarily consists of a network of bond dealers in the over-the-counter market. 
E)  primarily consists of a network of bond dealers in the over-the-counter market and consists of many investors on any given day. 
A)  can be quite "thin." 
B)  primarily consists of a network of bond dealers in the over-the-counter market. 
C)  consists of many investors on any given day. 
D)  can be quite "thin" and primarily consists of a network of bond dealers in the over-the-counter market. 
E)  primarily consists of a network of bond dealers in the over-the-counter market and consists of many investors on any given day.

Question 2

A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield to call?

Accepted Answer

A)  12.03% 
B)  10.86% 
C)  10.95% 
D)  9.14% 
E)  None of the options are correct. 
A)  12.03% 
B)  10.86% 
C)  10.95% 
D)  9.14% 
E)  None of the options are correct.

Question 3

If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the accrued interest would be

Accepted Answer

A)  $5.67. 
B)  $7.35. 
C)  $6.35. 
D)  $6.15. 
E)  $7.12. 
A)  $5.67. 
B)  $7.35. 
C)  $6.35. 
D)  $6.15. 
E)  $7.12.

Question 4

Collateralized bonds

Accepted Answer

A)  rely on the general earning power of the firm for the bond's safety. 
B)  are backed by specific assets of the issuing firm. 
C)  are considered the safest variety of bonds. 
D)  are backed by specific assets of the issuing firm and are generally considered the safest variety of bonds. 
E)  All of the options are true. 
A)  rely on the general earning power of the firm for the bond's safety. 
B)  are backed by specific assets of the issuing firm. 
C)  are considered the safest variety of bonds. 
D)  are backed by specific assets of the issuing firm and are generally considered the safest variety of bonds. 
E)  All of the options are true.

Question 5

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000. If the bond matures in 18 years, the bond should sell for a price of _______ today.

Accepted Answer

A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $130.04 
A)  $422.41 
B)  $501.87 
C)  $513.16 
D)  $130.04

Question 6

Of the following five investments, ________ is (are) considered the least risky.

Accepted Answer

A)  Treasury bills 
B)  corporate bonds 
C)  U.S. agency issues 
D)  Treasury bonds 
E)  commercial paper 
A)  Treasury bills 
B)  corporate bonds 
C)  U.S. agency issues 
D)  Treasury bonds 
E)  commercial paper

Question 7

Subordination clauses in bond indentures

Accepted Answer

A)  may restrict the amount of additional borrowing the firm can undertake. 
B)  are always bad for investors. 
C)  provide higher priority to senior creditors in the event of bankruptcy. 
D)  may restrict the amount of additional borrowing the firm can undertake and provide higher priority to senior creditors in the event of bankruptcy. 
E)  All of the options are true. 
A)  may restrict the amount of additional borrowing the firm can undertake. 
B)  are always bad for investors. 
C)  provide higher priority to senior creditors in the event of bankruptcy. 
D)  may restrict the amount of additional borrowing the firm can undertake and provide higher priority to senior creditors in the event of bankruptcy. 
E)  All of the options are true.

Question 8

If a 7% coupon bond is trading for $975.00, it has a current yield of

Accepted Answer

A)  7.00%. 
B)  6.53%. 
C)  7.24%. 
D)  8.53%. 
E)  7.18%. 
A)  7.00%. 
B)  6.53%. 
C)  7.24%. 
D)  8.53%. 
E)  7.18%.

Question 9

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087 with an effective annual yield of

Accepted Answer

A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct. 
A)  12.40%. 
B)  12.55%. 
C)  12.62%. 
D)  12.68%. 
E)  None of the options are correct.

Question 10

A CDO is a

Accepted Answer

A)  command duty officer. 
B)  collateralized debt obligation. 
C)  commercial debt originator. 
D)  collateralized debenture originator. 
E)  common debt officer. 
A)  command duty officer. 
B)  collateralized debt obligation. 
C)  commercial debt originator. 
D)  collateralized debenture originator. 
E)  common debt officer.

Question 11

A 7% coupon bond with an ask price of $100.00 pays interest every 182 days. If the bond paid interest 32 days ago, the invoice price of the bond would be

Accepted Answer

A)  $1,005.67. 
B)  $1,007.35. 
C)  $1,006.35. 
D)  $1,006.15. 
E)  $1,007.12. 
A)  $1,005.67. 
B)  $1,007.35. 
C)  $1,006.35. 
D)  $1,006.15. 
E)  $1,007.12.

Question 12

Consider the following $1,000-par-value zero-coupon bonds: $\begin{array}{ccc}
&\text { Years of } \
\text { Bond } & \text { Maturity } & \text { Price } \
\hline\text { A } & 1 & \$ 909.09 \
\text { B } & 2 & 811.62 \
\text { C } & 3 & 711.78 \
\text { D } & 4 & 635.52
\end{array}$ The yield to maturity on bond B is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct. 
A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct.

Question 13

Consider the following $1,000-par-value zero-coupon bonds: $\begin{array}{ccc}
&\text { Years of } \
\text { Bond } & \text { Maturity } & \text { Price } \
\hline\text { A } & 1 & \$ 909.09 \
\text { B } & 2 & 811.62 \
\text { C } & 3 & 711.78 \
\text { D } & 4 & 635.52
\end{array}$ The yield to maturity on bond C is

Accepted Answer

A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct. 
A)  10%. 
B)  11%. 
C)  12%. 
D)  14%. 
E)  None of the options are correct.

Question 14

A credit default swap is

Accepted Answer

A)  a fancy term for a low-risk bond. 
B)  an insurance policy on the default risk of a federal government bond or loan. 
C)  an insurance policy on the default risk of a corporate bond or loan. 
D)  an insurance policy on the default risk of federal government and corporate bonds and loans. 
E)  None of the options are correct. 
A)  a fancy term for a low-risk bond. 
B)  an insurance policy on the default risk of a federal government bond or loan. 
C)  an insurance policy on the default risk of a corporate bond or loan. 
D)  an insurance policy on the default risk of federal government and corporate bonds and loans. 
E)  None of the options are correct.

Question 15

You purchased an annual interest coupon bond one year ago that now has 18 years remaining until maturity. The coupon rate of interest was 11%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 10%. The amount you paid for this bond one year ago was

Accepted Answer

A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,083.65. 
D)  $1.092.46. 
E)  $1,104.13. 
A)  $1,057.50. 
B)  $1,075.50. 
C)  $1,083.65. 
D)  $1.092.46. 
E)  $1,104.13.

Question 16

A coupon bond is a bond that

Accepted Answer

A)  pays interest on a regular basis (typically every six months). 
B)  does not pay interest on a regular basis but pays a lump sum at maturity. 
C)  can always be converted into a specific number of shares of common stock in the issuing company. 
D)  always sells at par value. 
E)  None of the options are correct. 
A)  pays interest on a regular basis (typically every six months). 
B)  does not pay interest on a regular basis but pays a lump sum at maturity. 
C)  can always be converted into a specific number of shares of common stock in the issuing company. 
D)  always sells at par value. 
E)  None of the options are correct.

Question 17

Accrued interest

Accepted Answer

A)  is quoted in the bond price in the financial press. 
B)  must be paid by the buyer of the bond and remitted to the seller of the bond. 
C)  must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D)  is quoted in the bond price in the financial press and must be paid by the buyer of the bond and remitted to the seller of the bond. 
E)  is quoted in the bond price in the financial press and must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
A)  is quoted in the bond price in the financial press. 
B)  must be paid by the buyer of the bond and remitted to the seller of the bond. 
C)  must be paid to the broker for the inconvenience of selling bonds between maturity dates. 
D)  is quoted in the bond price in the financial press and must be paid by the buyer of the bond and remitted to the seller of the bond. 
E)  is quoted in the bond price in the financial press and must be paid to the broker for the inconvenience of selling bonds between maturity dates.

Question 18

If a 7.75% coupon bond is trading for $1,019.00, it has a current yield of

Accepted Answer

A)  7.38%. 
B)  6.64%. 
C)  7.25%. 
D)  7.61%. 
E)  7.18%. 
A)  7.38%. 
B)  6.64%. 
C)  7.25%. 
D)  7.61%. 
E)  7.18%.

Question 19

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be __________ if the coupon rate is 8%.

Accepted Answer

A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.20 
E)  None of the options 
A)  $922.78 
B)  $924.16 
C)  $1,075.80 
D)  $1,077.20 
E)  None of the options

Question 20

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 8.7%, and has a yield to maturity of 7.9%. The current yield on this bond is

Accepted Answer

A)  8.39%. 
B)  8.43%. 
C)  8.83%. 
D)  8.66%. 
E)  None of the options are correct. 
A)  8.39%. 
B)  8.43%. 
C)  8.83%. 
D)  8.66%. 
E)  None of the options are correct.

Exam 14: Bond Prices and Yields

The bond market

A 12% coupon bond with semi-annual payments is callable in five years. The call price is $1,120. If the bond is selling today for $1,110, what is the yield to call?

If a 7% coupon bond that pays interest every 182 days paid interest 32 days ago, the accrued interest would be

Collateralized bonds

A zero-coupon bond has a yield to maturity of 12% and a par value of $1,000. If the bond matures in 18 years, the bond should sell for a price of _______ today.

Of the following five investments, ________ is (are) considered the least risky.

Subordination clauses in bond indentures

If a 7% coupon bond is trading for $975.00, it has a current yield of

A Treasury bill with a par value of $100,000 due three months from now is selling today for $97,087 with an effective annual yield of

A CDO is a

A 7% coupon bond with an ask price of $100.00 pays interest every 182 days. If the bond paid interest 32 days ago, the invoice price of the bond would be

Consider the following $1,000-par-value zero-coupon bonds: Years of Bond Maturity Price A 1 \ 909.09 B 2 811.62 C 3 711.78 D 4 635.52 The yield to maturity on bond B is

Consider the following $1,000-par-value zero-coupon bonds: Years of Bond Maturity Price A 1 \ 909.09 B 2 811.62 C 3 711.78 D 4 635.52 The yield to maturity on bond C is

A credit default swap is

You purchased an annual interest coupon bond one year ago that now has 18 years remaining until maturity. The coupon rate of interest was 11%, and par value was $1,000. At the time you purchased the bond, the yield to maturity was 10%. The amount you paid for this bond one year ago was

A coupon bond is a bond that

Accrued interest

If a 7.75% coupon bond is trading for $1,019.00, it has a current yield of

A coupon bond that pays interest semi-annually has a par value of $1,000, matures in five years, and has a yield to maturity of 10%. The intrinsic value of the bond today will be __________ if the coupon rate is 8%.

A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 8.7%, and has a yield to maturity of 7.9%. The current yield on this bond is

The Investment Environment

Asset Classes and Financial Instruments

How Securities Are Traded

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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